TCS Daily

Justice Delayed, Justice Denied

By James Pinkerton - May 12, 2004 12:00 AM

Justice delayed is justice denied. That wisdom applies to government regulation, just as it does to criminal justice. And yet another injustice is done when regulators act like legislators -- or redistributors. A third injustice comes when outsiders -- be they naturally noisy pressure groups or lobbyists operating at the behest of rival companies -- get into the game. A case that underscores all three points is the proposed merger of Cingular Wireless and AT&T Wireless Services.

This corporate mating hasn't been much in the headlines of late. Nonetheless, it is not small potatoes; it's a $41 billion deal, involving 45 million cell phone customers. And so the prospective merger, pending since February 17, is worth pausing over, because it reveals so much about the workings of the Regulator-Lobbyist Political Complex (RLPC) in ways that have larger implications, in the US and around the world.

Many experts believe that the wireless biz is in need of consolidation. Specifically, the Cingular-AT&T deal could help streamline service -- providing customers with coverage in 97 of the top 100 markets, in 49 of 50 states -- and also allow for the acceleration of such forward-looking services as 3G. In the words of the Seattle Post-Intelligencer, the deal is "a milestone for the wireless industry, which is rapidly becoming integral to consumers' lives as more mobile phones begin to transmit data, such as e-mail and Internet traffic, as well as voice calls."

E-Commerce News went further in elaborating the transaction's benefits:

The AT&T Wireless network uses the GSM standard (global system for mobile communications) -- an enhanced system that enables customers to send photos from cell phone to cell phone. Cingular's GSM network isn't as extensive, and it would have to spend far more to build out its own network than it will spend to buy an existing system. Plus, Cingular will get additional wireless spectrum from AT&T Wireless, which it can use to ensure seamless coverage.

The Communications Workers of America, which represents many of the employees involved, supports the merger, too. In its filing with the FCC, the CWA declared that the deal would lead to "many public interest benefits." Enumerating those benefits, the big union echoed the upside for consumers and then added its own perspective: "Cingular is a recognized leader among US corporations for its high-performance human resources policies."

So if the deal benefits the companies in question, benefits consumers, and benefits workers -- what's not to like?

Needless to say, a few don't like it. Consumers Union and the Consumer Federation of America -- the "usual suspects" in almost every instance where there's an opportunity to plant the legal equivalent of an IED along the path of a corporation -- pronounce themselves opposed to the deal as damaging to "competition." But that formulaic allegation is refuted by the CWA: "The merger poses no harm to competition. The wireless market will continue to be highly competitive after the merger with five strong providers in the national wireless market, plus additional strong regional and local companies."

The national providers, of course, are Nextel, SprintPCS, T-Mobile, Verizon, plus Cingular and AT&T. But as the CWA says, they are confronted by competition from local firms, from so-called "resellers" -- that is, companies such as Virgin Mobile, which do not own a network but rather repackage and resell air time that they acquire from network-owning companies. Moreover, the whole cell-model is under challenge today from alternative wireless providers, such as those offering WiFi. But most urgently for the two companies, Cingular and AT&T are being put at a competitive disadvantage as they drum their fingers in Uncle Sam's ante room, waiting for regulatory approval. In the first quarter of 2004, AT&T announced the loss of 367,000 subscribers, almost two percent of its customer base. And that hemorrhage could worsen if the government continues to throttle the merger in red tape. To put it bluntly, the problem is that while capitalism races along, the government merely pokes along.

The chief stumbling block is the Hart-Scott-Rodino Antitrust Act of 1976, which requires pre-merger notification filings with the Justice Department in transactions of $15 million or more. That's an absurdly low number, of course, in an $11 trillion economy -- but that's the government for you.

Greg Sidak, a telecommunications expert at the American Enterprise Institute, observes that these proceedings have become "a form of industrial planning, an occasion for the government to extract concessions from companies for merging." For example, the anti-trust division at Justice might require Cingular to spin off a certain portion of its spectrum assets, in the name of improving "competition." Sidak is indeed pro-competition, but he argues that regulators ought to regulate according to the law as it's written, not according to their own views of Social or Economic Justice. The anti-trust division, he says, "is not a legislative body or a public utility commission. It is supposed to take an existing body of law and a set of facts" and do its work within those parameters. But, he concludes, "there's been a change in the role of the anti-trust division," toward a greater activism.

An additional problem is that others, too, can get into the act. That is, once the government creates a process -- a series of red-tape hoops for companies to jump through -- it's possible for outsiders, not just bureaucrats, to make the hoop-jumping more difficult. Sidak says that in a regulatory proceeding it's common -- and legal -- for competitors to launch "ex parte" interventions in regulatory matters. In such instances, lobbyists and others will descend upon a regulatory agency, armed with arguments as to why the regulators should regulate their rivals more strictly. Defaulting into economic terminology, Sidak explains, "It's called 'rent seeking' -- imposing costs on rivals."

Sidak is withholding judgment on the Cingular-AT&T case, although many observers think that other wireless outfits are, in fact, seeking to gum up the works -- because, as Cingular and AT&T are preoccupied, their current customers can be poached.

So as a general solution, Sidak urges a more limited, expeditious, and transparent regulatory process. He notes that once the Justice Department gets done with its review, the Federal Communications Commission must duplicate the same oversight process. This is "redundant," Sidak maintains, although, of course, it's good news for the Gucci Gulch crowd and other fans of litigation-proliferation.

But in his urging of restraint, Sidak is offering advice for everyone who is concerned more about the productive economy of America, and less about the mostly parasitic economy of Washington DC. As we saw in the Clinton years, especially with the Microsoft case, anti-trusters are constantly looking for new "turf" to occupy, using new theories and new fads as justification. And in Europe, where Competition Commissioner Mario Monti reigns serene and supreme, the economy-crippling danger of arbitrary and capricious state power is far greater.

Grover Norquist, the leading libertarian-Republican strategist and coalition-builder in Washington, says it best: "Governments routinely hurt business by delaying regulatory proceedings, stretching them out to the point where the business environment changes and the affected companies can't keep up. Such dilatory tactics hurt firms, of course, but they also hurt workers and shareholders." And as we have seen, pressure groups and rival-company lobbyists oftentimes also pour sand upon the wheels and cogs of Washington's regulatory establishment, as a way of gaining competitive advantage.

Given the great power inside the Beltway, it's no surprise that corporate chieftains and their K Street apparatchiks feel enormous temptation to muck-up and rent-seek within the context of regulatory proceedings. Yet they should remember that a life-verity is also a business-verity: what goes around comes around. In sticking it to Cingular and AT&T today, rival carriers are making it more likely that they will get stuck tomorrow. When business enmeshes itself in the torturous coils of the Washington RLPC, the only sure winner is the RLPC.


TCS Daily Archives